Israel's economy may grow 3 percent next year, but the economy hasn't emerged out of the crisis unharmed and has yet to return to growth levels enjoyed in the middle of the decade, said Bank Hapoalim chairman Yair Seroussi.
"An improvement in the labor market, concurrent with a decline in unemployment, together with stable and further-reduced level of risks in the credit market, are essential prerequisites for consolidating the Israeli economy's recovery from the recession of the past year," said Seroussi, speaking at the annual conference of the International Monetary Fund and the World Bank in Istanbul over the weekend.
On Thursday, the IMF raised its growth forecast for the Israeli economy to a mere contraction of 0.1% for this year from a contraction of 1.7% previously. In 2010, the economy may grow at a faster pace of 2.4% compared with 0.3% previously estimated. The Bank of Israel revised its growth forecast for the economy last month, according to which growth will be flat this year while the economy will expand by 2.5% in 2010.
Seroussi and incoming CEO of Bank Hapoalim Zion Keinan hosted dozens of banking leaders from around the world at a banking event during the IMF annual conference and held meetings with policy-makers, decision-makers and prominent financial figures. Speaking at the conference over the course of this week are Governor of the Bank of Israel Prof. Stanley Fischer and Finance Minister Yuval Steinitz accompanied by the ministry's Director-General Yarom Ariav and Accountant General Shuky Oren.
"Although the global economy has made an impressive recovery from the recession to date and a worldwide recession of the type experienced in 1929 has been averted, the growth in budget deficits and public debt is of great concern, especially in the USA, the UK and other developed countries. The IMF estimates that as a result of this growth, the public debt in the world's 10 most developed countries will reach an average level of $50,000 per citizen," said Seroussi. "The developed world has not known such high levels of public debt since the end of World War II."
Seroussi added that as a result of these processes, Bank Hapoalim estimates that bond yield curves will begin to move upwards at some stage during 2010.
"In other words, we believe that low interest rates and yields will not be maintained at their present relatively low level over time," said Seroussi.
Looking ahead to the strategy of the bank over the coming year, Seroussi identified capital adequacy, liquidity and the accurate assessment of risks as the central issues.
"Customers' confidence and trust will be largely dependent on the level of professionalism with which the bank deals with the subjects of capital adequacy, liquidity and risks. Therefore, my colleagues and I place great importance on these areas," said Seroussi.
"Return and risk are two parameters that must be discussed together and simultaneously, and not separately. Prudent banking, which I believe in and act according to, shows preference in many cases to situations where low yield is accompanied by low risks, rather than the opposite. The recent recession highlights the overwhelming importance of accurately assessing the exposure to different risks."
Furthermore, Seroussi emphasized the importance of proper supervision of the non-banking sector in Israel.
"Policy-makers in Israel must re-examine how to enhance the supervision and regulation of the non-banking credit market," said Seroussi. "The regulator's function in the future will be to determine the rules that will allow growth in the non-bank market while ensuring that risks are kept under control."